A Remittance Revolution, Or just business as usual? – How Fintech startups are changing the game for Sub-Saharan Africa

Dec. 9, 2015

Remittance is a huge part of the global economy – this year it is estimated that up to 40 billion dollars worth of remittances will flow back into the African countries alone.

There are some huge remittance corridors in operation today – and real economic power, flowing both ways, is working for the betterment of people across the globe. And this is especially true of Sub-Saharan Africa – 4 of the top 10 fastest growing economies are on the continent, and there’s real economic growth being delivered by remittance. While many people assume that foreign aid makes up a big part of that growth, in fact it only covers about 2% of African GDP. Instead, in 2010 African migrants using remittance corridors sent more money back home – $52 billion – than foreign aid to the entire continent – $43 billion.

So what's the issue?

According to the World Bank’s Global Findex, in Sub-Saharan Africa just 34% of adults have any sort of formal financial account, and those that do tend to be the wealthy.

So how are people sending money back to Nigeria, Kenya or Uganda if so few have bank accounts? Well traditionally you would have to pay a company a fairly hefty fee, sometimes up to 40%, to send cash to an urban area close(ish) to the recipient . The problem was – sometimes that wouldn’t be close at all. People living hours away from a local city were facing a 2 or 3-hour journey. Imagine if you were running a business in a rural area and you had to take hours out of your day to go and collect the money. Not exactly a fluid system is it?

What changed?

From the early 2000’s mobile phone ownership began to spread across huge areas – from the cities to small villages. In fact it began to spread so much so that barely ten years later 80% of people in Sub-Saharan Africa owned a mobile phone. People were suddenly becoming more connected and more available.

This in turn led to the rise of mobile airtime as a proxy for money-transfer – which meant that people could send money in the form of airtime to whoever they wanted. And we mean whoever – M-pesa, which has rapidly become one of the biggest mobile money companies, reports having nearly 20 million account holders in 10 countries.

Besides proving the benefits of bypassing the traditional systems – something we feel strongly about – mobile money has revolutionized the transfer of money in Sub-Saharan Africa – allowing the movement of money quicker, easier and with less institutional hassle. To take one example, in Kenya mobile money is now the largest form of ‘banking’, by far, with 58% using their phone for the holding and sending of the money. Compare that with the global average of 4% of the population who use mobile banking and it becomes clear just how far ahead Sub-Saharan Africa is pulling.

What about now?

All this is part of a trend of people becoming less and less beholden to traditional money transfer methods. The rise of new systems, creative fintech companies and peer to peer technology are pushing things on – and users across the globe are benefiting. Mobile banking users can now send funds to mobile money wallets, bank accounts or airtime credit packs – and for a fraction of the price. What’s more, 90% of those transactions are received instantly.

The Internet can be a great place when it’s used to solve people’s problems. It’s helping to challenge the systems in place and give people more freedom to send their money where they want, when they want and how they want.

So what's all this got to do with us?

We’ve seen the difference these kinds of services have made for customers sending money home and we’re proud to be a part of the Fintech boom that is giving people more freedom when it comes to remittance. There is still a long way to go – as Lawrence Wintermeyer, the CEO of Innovate Finance, put it:

“Banking the unbanked is one of the biggest challenges facing the world”.

But the good new is that Fintech – big and small, African or otherwise – is working on it.